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Before AI can populate a current-year lead schedule using the TB and prior-year lead, what does it need to understand?
The chart of accounts and how current-year GL accounts map to the prior-year lead schedule.
The balance sheet reports debt of $25.4M and the debt footnote also reports $25.4M. What has AI confirmed?
The debt balance on the face of the financial statements agrees to the related footnote.
Copilot notices that Selection #7 has testing documented but no conclusion. What should it identify?
Missing or incomplete audit documentation.
A private software company provides AI with a customer contract and asks it to evaluate revenue recognition under ASC 606. What five areas should the AI analysis consider?
Identify the contract, identify the performance obligations, determine the transaction price, allocate the transaction price to the performance obligations, and determine when each performance obligation is satisfied.
Your private client completes an acquisition and a valuation specialist provides a 60-page purchase-price-allocation report. What's one immediate way AI could help the audit team?
Summarize the valuation methodologies, significant assumptions, conclusions, and areas requiring engagement-team attention.
Account 61005 was called “Professional Fees” in PY but “Consulting Expense” in CY. The underlying activity is unchanged. Should AI automatically identify this as a new account?
No. AI should recognize that the account may have simply been renamed and confirm the underlying account mapping.
The PPE footnote reports depreciation expense of $3.7M, while the statement of cash flows shows a $3.5M depreciation add-back. What should AI do?
Flag the $200K inconsistency for investigation.
An EGA includes supporting evidence for a $500K selection but doesn't explain what was inspected or which attributes were tested. What's missing?
Documentation of the procedures performed and attributes tested.
A private software company enters into a $500K customer contract that includes software access, implementation services, training, and two years of support. How could AI assist the engagement team in evaluating the contract?
AI could extract the promised goods and services and help identify which may represent distinct performance obligations requiring further evaluation by the engagement team.
The specialist's business-combination report values customer relationships using forecasted revenue growth, attrition, margins, and a discount rate. What could AI help identify?
The significant assumptions that have the greatest impact on the valuation.
Three PY accounts were consolidated into one CY GL account. AI identifies a $2M variance because the new account doesn't individually match any PY account. What went wrong?
AI failed to account for the change in the chart of accounts and properly map the consolidated accounts.
Note 8 says “See Note 12,” but the related disclosure is actually contained in Note 11. What should AI identify?
An incorrect financial statement cross-reference.
The EGA concludes that revenue was appropriately recognized, but the only documented procedure agrees the invoice amount to the GL. What's the issue?
The documented audit evidence does not support the conclusion reached.
AI reviews a client's customer contract and identifies a $1M base fee, a potential $200K performance bonus, customer rebates, and a volume discount. What ASC 606 consideration should AI flag?
The contract contains variable consideration that may affect the transaction price and should be evaluated under ASC 606.
AI compares the valuation report to management's board-approved forecast and discovers the specialist used 12% revenue growth while the board forecast assumes 7%. What should it flag?
The inconsistent revenue-growth assumptions for engagement-team investigation.
Travel expense increased by $800K, but $750K relates to costs reclassified from another GL account. How much of the apparent increase represents a true YoY variance?
Approximately $50K. The remaining $750K is a classification change rather than a true economic variance.
PPE per the balance sheet agrees to the PPE footnote, and depreciation per the footnote agrees to the cash flow statement. However, depreciation per the audit EGA is $300K lower. What should AI flag?
The $300K difference between the supporting audit documentation and the draft financial statements.
Copilot identifies an unexplained difference between the testing population documented in the EGA and the underlying supporting file. What should the auditor do?
Investigate and resolve the difference rather than automatically accepting Copilot's conclusion.
Your private client recognizes $2M of revenue immediately upon signing a three-year service contract. AI reviews the agreement and identifies that the customer receives the services evenly throughout the three-year term. What should AI flag?
Revenue may need to be recognized over time as the performance obligation is satisfied rather than entirely at contract signing.
AI performs sensitivity analysis and determines that increasing the discount rate by 1% decreases the acquired intangible's value by $8M. Why could this be useful to the audit team?
It identifies how sensitive the valuation is to changes in a significant assumption and helps focus the team's challenge of the estimate.
AI automatically maps the TB into your lead schedules and identifies all significant YoY fluctuations. What should the auditor do before relying on the completed lead?
Validate the account mapping, completeness and accuracy of the TB, and whether the identified fluctuations represent true variances.
AI completes the entire FS tie-out and reports zero exceptions. What still needs to happen?
The engagement team must review and validate the AI's work and determine that the financial statements were appropriately tied out.
Copilot reviews an EGA and finds no issues. Can the preparer mark the workpaper complete solely based on Copilot's review?
No. The preparer and reviewer remain responsible for determining whether the EGA contains sufficient appropriate documentation and supports the audit conclusion.
A private company enters into a $5M, three-year customer contract. Management's ASC 606 memo concludes that the arrangement contains one performance obligation and recognizes the entire $5M at a point in time.
AI reviews the underlying contract and identifies:
The AI analysis identifies potential ASC 606 considerations that were not addressed in management's memo and should be investigated by the engagement team before concluding on the appropriateness of revenue recognition.
AI reads the specialist's entire report, compares the assumptions to management's forecasts, performs sensitivity analyses, and concludes that the valuation is reasonable. Can the PwC engagement team rely on that conclusion?
No. AI can help analyze the specialist's work and identify areas requiring challenge, but the engagement team remains responsible for performing the required audit procedures and evaluating the specialist's work.